What to remember
- Collateral secures a loan; it does not replace income.
- Guarantors, security providers and co-borrowers have different roles.
- Check both costs and the process for releasing security.
1. What is collateral?
Collateral is an asset pledged to secure an obligation; property can secure a loan through a mortgage. On non-payment, the asset may be used to settle the debt under the agreement and legal process.
The Bank of Albania describes collateral as an additional repayment source. Lending also depends on the borrower’s repayment capacity, not just the asset value.
2. Assets and people: who provides what?
Ask the bank to explain each signatory’s role separately. One person may sign in more than one capacity. Read every document before signing and obtain your copy.
When helping a relative, ask about the maximum amount that may be claimed from you, the duration and any included interest or expenses. Treat the signature as a financial commitment.
A guarantee must be in writing. Article 590 of the Civil Code provides for joint and several liability unless agreed otherwise: do not assume the bank must first exhaust recovery from the borrower before seeking payment from the guarantor.
| Role | Plain explanation | What to clarify |
|---|---|---|
| Borrower | Takes the loan and must repay it | Amount, term and all payments |
| Co-borrower | Joins the borrower in the loan agreement | Each person’s liability; do not assume it is limited to half |
| Guarantor | Undertakes to guarantee another person’s obligation | When payment can be claimed from them and up to what amount |
| Owner providing security | Pledges an asset to secure the loan | Which asset is at risk and whether personal obligations are also signed |
Exact liability depends on the documents and applicable law. Obtain independent legal advice before pledging your property for someone else’s borrowing.
3. What kind of security might be required?
A home loan may use the purchased property or another accepted property as security. ABI’s published conditions provide an example, subject to bank acceptance. Do not assume any property qualifies or covers the entire purchase price.
Ask about ownership, co-ownership, existing encumbrances and missing documents. Before paying for valuation or notary services, clarify preliminary document acceptance and which fees are non-refundable if the application is declined.
4. Property value and loan amount
The seller’s price and the bank’s accepted value may differ. Ask which value is used and whether currency, income or property type leads to a lower lending limit.
Hypothetical example: purchase price EUR 100,000, accepted value EUR 90,000 and an assumed 80% financing ratio. The loan is EUR 72,000, leaving EUR 28,000 to fund yourself, plus costs. This is neither a guaranteed lending percentage nor a regulatory limit.
In this example the loan-to-value ratio is 80%. The reverse ratio, collateral value to loan, is 125%. Always ask which amount is the denominator.
5. If a deposit secures the loan
Collateral is not limited to property. BKT, for example, publishes a deposit-backed loan with the deposit blocked as security. This should not be generalised to every bank.
Ask how much is blocked, when it becomes accessible and what happens if the deposit matures before the loan. Compare the net deposit interest retained with borrowing interest and fees. Having savings does not make borrowing free.
6. Costs of arranging and releasing security
Request an itemised estimate for valuation, notary work, security registration and required insurance. Separate one-off payments from annual costs. ABI’s home-loan page, for example, lists valuation, notary and registration expenses and insurance.
At settlement, request repayment confirmation and security-release instructions. Ask who prepares and submits the documents and what the process costs. Do not rely solely on the final instalment having been paid.
7. What is at risk if you do not pay?
Non-payment may lead to legal recovery and enforcement against collateral, including use or sale of the asset to repay the debt. Do not assume surrendering property automatically clears all borrowing. Ask for written clarification of any possible shortfall and enforcement expenses.
Contact the bank before falling behind if you expect difficulties. The Bank of Albania’s advisory guide encourages early restructuring discussions; a new arrangement requires agreement. Property insurance is not a promise to cover instalments whenever finances become difficult.
Questions to take to the bank
Use this list when requesting your written offer.
- Which asset is pledged and which obligations does it secure?
- In which role does each person sign and what is their liability?
- What value does the bank accept and how much can it lend against it?
- What do valuation, notary, registration, insurance and release cost?
- What happens if a sale raises less than the debt?
- What confirmation do I receive at settlement and how is security released?
Frequently asked questions
Does collateral guarantee loan approval?
No. The bank also assesses repayment capacity and product conditions. A valuable property does not replace an affordable repayment plan.
Does “unsecured” mean debt has no consequences?
No. Repayment is still required. Check contractual late interest, fees and non-payment consequences; not pledging a specific asset does not erase the debt.
Can the security property be replaced during the loan?
Ask the bank for prior approval and details of valuation, documents and costs. Do not assume one property is released just by offering another of a similar price.
Sources and examples
Bank of Albania: property valuation and credit relationships ↗
Links beside specific explanations identify their official sources. Worked examples are educational assumptions, not bank offers. The bank confirms the terms for your situation.
Further reading in English
These guides offer additional explanations from the UK and US. Their local laws, products and eligibility tools may not apply in Albania. Albanian requirements are linked to local sources above.